This relates to comments I made earlier in this thread, that is I focus on QQQQ and IWM, where option Bid/Ask spreads are generally small. Therefore the issues of SMART/etc are less of an issue, and I like IB when trading options on these underlyings.
The raison d'etre of the SMART router is to either internalize the order(timber hill), or to sell the order to a third party. That's why they charge $1.05 more per option if you, yourself route directly to the exchange. They get no order flow payments that way. So, there's no way IB would stop doing this as it's their business model.
Almost all businesses must operate on this basis (looking after the shareholder). The solution to the contradiction is that usually looking after your (particular niche/group of) customers is the best way to profitable.
this would only be practical for fully electronic exchanges/products. for options like spx/oex on cboe, it would take too long, especially when you factor in the cancellation of the order before it gets sent to the next exchange.
That's not necessarily mutually exclusive. If we can provide the best executions and fills, we gain and attract more business. We are in this for the long haul.
I find this information as important for IB traders, or for that matter traders of any broker to know about their broker, as you must know the rules of the game to be a successful trader. These are my conclusions regarding this thread & the thread of "Identifying when IB is your counterparty". If anyone would differ with ANY of these conclusions, and especially IB, please speak up: 1) IB, like any other MM is in business to make money, and do the same things the other MM's do. 2) IB does have a Chinese wall between the customer orders & Timberhill. 3) IB will prioritize filling the trades with Timberhill being the counterparty as opposed to another customer being the counterparty because it will usually prove more profitable to them, and because first scanning for the order to be filled between two IB customers would cause delays regarding the algorithm. 4) IB offers lower commissions for options for using smart route & for that matter pays various broker dealers to buy their order flow for the reasons mentioned above. 5) Regardless of how it happened, if IB or any other MM?? has a net long or net short position in a stock, they will "protect" themselves by placing huge bids in to support the price, or huge offers in to contain the price from turning against them. 6) Smart traders incorporate this type of information into their trading decisions.
Unfortunately, I disagree with some of your points specifically No 6. Under no circumstances and I repeat no circumstances can you compete or beat the MMs at thier own game. They will blow you away into smithereens.